I'm a Fellow at the Adam Smith Institute in London, a writer here and there on this and that and strangely, one of the global experts on the metal scandium, one of the rare earths. An odd thing to be but someone does have to be such and in this flavour of our universe I am. I have written for The Times, Daily Telegraph, Express, Independent, City AM, Wall Street Journal, Philadelphia Inquirer and online for the ASI, IEA, Social Affairs Unit, Spectator, The Guardian, The Register and Techcentralstation. I've also ghosted pieces for several UK politicians in many of the UK papers, including the Daily Sport.

Experts Reel In Amazement As New York Times Gets Something Right

I do, of course, jest in part. But there is at least a quiet satisfaction at seeing the New York Times getting it right on the problems with pharmaceutical development. The difficulty is with the incentives that the Big Pharma companies face in trying to develop new drugs. We might want them to develop new antibiotics: it’s at least arguable that having more, better and newer ones to replace those that are made redundant by increasing resistance to them will increase future human happiness and utility more than any other industrial investment we could possibly make. Yet we’ve also managed to construct a system whereby no economically rational company would invest in this area. We’ve made it so that the incentives just aren’t there for people to be encourage to do what we arguably would like them to do.

Antibiotics face a daunting proposition. They are not only becoming more difficult to develop, but they are also not obviously profitable. Unlike, say, cancer drugs, which can be spectacularly expensive and may need to be taken for life, antibiotics do not command top dollar from hospitals. What’s more, they tend to be prescribed for only short periods of time. Continue reading the main story

Importantly, any new breakthrough antibiotic is likely to be jealously guarded by doctors and health officials for as long as possible, and used only as a drug of last resort to prevent bacteria from developing resistance. By the time it became a mass-market drug, companies fear, it could be already off patent and subject to competition from generics that would drive its price down.

We should also note this little point:

The problem, of course, lies in the industry’s incentives. The cost of developing a new drug has skyrocketed over the last three decades. A research paper by scientists from Eli Lilly suggested that in 2010, it cost $1.8 billion to bring a big new drug from conception to rollout, through the costly gantlet of clinical trials needed to prove that it is both safe and more effective than existing therapies.

Add them together and you can see what the problem is. It costs $1.8 billion to develop a new drug (most of that cost, the vast majority, being getting it through the FDA process of approval), a new antibiotic won’t have widespread use when first introduced and will almost certainly be off patent by the time it is widely used. Thus no one can make money out of spending that initial $1.8 billion.

But if we do want to have new antibiotics developed then we do need to find some manner of creating the incentives that will lead to their development. The two obvious ones that come to mind are to either (or both) increase the patent period so as to enable an earn back, or to simply reduce the costs of drug development in the first place.

Of these, the simplest and most obvious might be to change the patent period. This could actually be done quite simply, without then also upsetting all of the other markets where patents are important. At present it can take 10-12 years for a drug to pass through the licensing process (note, that’s an upper bound, an extreme). But the 20 year life of the patent has been running since that patent was first registered, right at the beginning of the process. Leaving the company with only 10-8 years to make back its vast investment rather than the 20 which the original patent system assumed. So, why not simply state that for drugs the patent clock starts ticking when the treatment is approved, not when it is registered?

The other type of solution is perhaps more radical. For example, the FDA insists that the pharma companies must prove that a treatment is both safe and also more effective than other treatments. That’s quite an imposition. It’s fair enough that there should be trials to show that the drug works. And we’d certainly like to know whether there are side effects. But we might perhaps be happy to put up with those side effects if we’re properly informed about them. And quite why “works better” is something that is required by the FDA is not really understood by your humble writer. That’s something that the market itself can work out. Doctors obviously wish to do the best by their patients so we can trust them to prescribe the “best” treatment given the circumstances their patients are in. We don’t, perhaps, need a Federal bureaucracy forcing drug manufacturers to spend hundreds of millions proving this point before launch of the drug.

But whatever the detailed solutions are it is still good to see that the New York Times is now on the same page as the economics profession. The single most important insight of the subject is that incentives matter. And if we’ve got a non- or mal-functioning part of the economy the first thing is to go look at those incentives. And as the NYT says, the incentives around drug development these days, especially of antibiotics, are cockeyed. That’s why we’re not getting any new ones. So it’s those incentives we need to fix.

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“So, why not simply state that for drugs the patent clock starts ticking when the treatment is approved, not when it is registered?”

That would then provide an incentive for companies to ‘patent’ – that is, register a patent for – everything under the sun, then simply not do development work on a lot of it. The alternative would be that you meant that companies could not patent something until after the trials, but that would basically mean making their research public without any patent protection in place.

It’s not a simple fix. Much simpler would be just to extend the patent term for drug patents. Smaller change, fewer unpredictable consequences.

“And quite why “works better” is something that is required by the FDA is not really understood by your humble writer. ”

Because drug trials do not rule out any possibility of undiscovered side-effects – for example, thalidomide. There’s no sense taking the risk of approving a possibly harmful substance unless it offers some benefit.

“ The two obvious ones that come to mind are to either (or both) increase the patent period so as to enable an earn back, or to simply reduce the costs of drug development in the first place.”

How about an X-prize? If the US government put up a $20bn bounty for an appropriate new antibiotic, say, there’d be significantly more incentive to produce it – even without patent protection changes.

You are making the assumption, of course, that we generally want to see medicine advance. However, there is also the stated goal of bending the cost curve down (whatever that means), but wouldn’t one of the fastest ways to accomplish that be to determine that medicine is good enough today, hence slash what goes into R&D? (cynical mood this morning)